Term Life Insurance
Term Life Insurance is the most basic form of life insurance. It provides coverage for a fixed period of time at a fixed rate, at the end of that specified time period (term) your coverage can be continued, but it’s often at a higher rate for the next term (up to a mandatory expiry date) usually age 75 or 85.
Term life insurance can be a cost effective solution for anyone. The most common term periods chosen are 10, 20 or 30 years. Term life insurance is typically the best priced solution for time specific needs or when keeping costs low is a prime motivator.
Term Life Insurance can be a great fit for:
PARENTS: For example, if you’re a parent and your youngest child is 2 years old, you might choose a 20 year term which will offer your family coverage up until your child graduates from college, usually at age 22.
At the end of that 20 year term the parent will have a number of options available to them:
(1) Continue the term life insurance at the new rate.
(2) Convert to permanent life insurance.
(3) Reduce the amount of term life insurance.
(4) Cancel the term life insurance.
(5) Any combination of the above.
DEBTS: Term life insurance is also very good for covering short to medium term debts or obligations including the mortgage on your house. See mortgage insurance.
DIVORCE: For example, if after a divorce you want to guarantee the support income from your ex, you might want to consider getting term life insurance on your ex-spouse. A Term 65 Life Insurance could be the best option here because it provides protection up to age 65.
BUSINESS: Term can also be used in the case of business debt, for example, if a business has a 5 year loan, it might want to insure that amount with a 5 Year Term Life Insurance on the owner of the company. Some business owners will choose a 10 Year Term Life Insurance, because usually the Term 10 is better priced and it allows for a longer time horizon.
Then when the loan is paid off the business may:
(1) Continue the term life insurance because it has new debts.
(2) Continue the term life insurance because the business needs Key Man Insurance.
(3) Continue the term life insurance because of a need to fund a Buy-Sell Agreement.
(4) Convert to permanent life insurance for the owner.
(5) Reduce the amount of term life insurance.
(6) Cancel the term life insurance.
(7) Any combination of the above.
Remember, over time your insurance needs may evolve. Term life insurance has some built in flexibility and it offers you the opportunity to convert it to permanent life insurance. This means your term life insurance can be a bridge from your short term needs to your long term protection needs.
Be Careful: Every time your term life insurance renews it keeps getting priced higher and higher with the age of the insured, usually to the point where the insurance gets canceled. However, most term life insurance can be converted at any time to permanent life insurance.
Caution: Most term policies will expire at age 75 or 85. This means that if the term life insurance is not converted to permanent life insurance or there has not been a death claim then the term life insurance will expire without a death benefit ever being paid out.
Tip 1: Buy your term life insurance early on to make sure you are still insurable and so that you are more likely to qualify for preferred rates.
Tip 2: Make sure you are getting the right advice, especially in business situations, because you won’t know you’ve got it wrong until it’s too late!